Eet201: Macroeconomic Theory Ii Question Paper
Eet201: Macroeconomic Theory Ii
Course:Bachelor Of Economics
Institution: Kenyatta University question papers
Exam Year:2012
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2011/2012
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
ECONOMICS
EET 201: MACROECONOMIC THEORY II
DATE: Tuesday 28th March, 2012
TIME: 2.00 p.m. – 4.00 p.m.
_______________________________________________________________________________
INSTRUCTIONS
Answer Question one and any other Two questions.
QUESTION ONE (COMPULSORY)
a)
Compare and contrast the significance of the demand management policies under the following
schools of thought:
i)
Keynesian theory
[3 marks]
ii)
Classical theory
[3 marks]
b)
Using a country of your choice as an example explain how fixed exchange rates are sustained.
[5 marks]
c)
Given the following equations for a certain economy
C = 100 + 0.8Yd
(Consumption function)
I = 10 – 10r
(Investment function)
G = 10
(Government purchases)
T = 0.25Y
(Tax rate)
L = Y – 100r
(Real money demand)
M = 295
(Real money supply)
Required
i)
Derive equations for IS and LM curves.
[5 marks]
ii)
Determine the r and y pair at which the two markets are clearing.
[2 marks]
iii)
Compute the values of C, I and L.
[3 marks]
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d)
In order to demonstrate your understanding of the Keynesian theory. Systematically discuss the
contribution of Keynes to the theory of money.
[9 marks]
QUESTION TWO
Explain through the use of short notes the foundations of classical model and provide a clear argument
against each as provided by John M. Keynes.
[20 marks]
QUESTION THREE
a)
Explain the difference between the devaluation of a currency and the appreciation of a currency.
[4 marks]
b)
Using well labeled diagrams, analyze the impact of an increase in money supply in the classical
model. This should be followed by a detailed explanation.
[8 marks]
c)
With aid of well labeled diagrams analyze the impact of investments in ICT in the classical
model.
[8 marks]
QUESTION FOUR
a)
Compare and contrast the capital account and the current account of the balance of payments.
[4 marks]
b)
Clearly distinguish between commodity and money markets.
[4 marks]
c)
Explain the J-curve phenomena.
[5 marks]
d)
Explain the effects of monetary policy in the three ranges of LM curve.
[6 marks]
QUESTION FIVE
a)
Using well labeled diagrams explain the adjustment to balance of payment deficit under flexible
exchange rate.
[10 marks]
b)
Using well labeled diagrams explain how balance of payment surplus under fixed exchange rate
would be rectified.
[10 marks]
…………………………..
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